For much of the last four years, automakers and their dealers had so few cars to sell — and demand was so strong — that they could command high prices. Those days are over, and hefty discounts are starting a comeback.
During the coronavirus pandemic, auto production was slowed first by factory closings and then by a global shortage of computer chips and other parts that lasted for years.
With few vehicles in showrooms, automakers and dealers were able to scrap most sales incentives, leaving consumers to pay full price. Some dealers added thousands of dollars to the manufacturer’s suggested retail price, and people started buying and flipping in-demand cars for a profit.
But with chip supplies back to healthy levels, auto production has rebounded and dealer inventories are growing. At the same time, higher interest rates have dampened demand for vehicles. As a result, many automakers are scrambling to keep sales rolling.
Wes Lutz, owner of Extreme Dodge in Jackson, Mich., said he had several Dodge Challengers and Chargers that were eligible for $11,000 discounts from Stellantis, the manufacturer of Dodge, Chrysler, Jeep and Ram models. The automaker is also offering discounts of up to $3,600 on certain versions of the Dodge Durango sport utility vehicle.
“It seems like we may be headed back toward incentives and overproduction,” Mr. Lutz said. “It’s not there yet, but it’s getting close.”
With a shrug, he added, “It may not be good for me or for the manufacturer, but it’s sure good for the consumer.”
Cash-back offers, subsidized loans and other incentives are important tools for selling cars. They allow automakers and dealers to offer monthly payments that are more affordable for consumers and ease the impact of high interest rates.
In the last few years, shortages and consumers’ preferences for large vehicles have pushed the average purchase price of new vehicles to just under $47,000, and the average monthly payment to $735, according to Edmunds, a market researcher. The average interest rate on used car loans was 11.6 percent in April, according to Edmunds.
At those levels, many consumers can no longer afford cars without substantial incentives.
But when taken to extremes, incentives can erode automakers’ profits and create a surge of sales that inevitably gives way to a painful drop. Repeated waves of discounting also condition consumers to purchase cars only when offered a deal.
Two decades ago, the industry went on an incentive binge. General Motors for a time sold cars at the heavily discounted prices it previously offered only to its employees. Extreme discounting helped weaken G.M. and Chrysler before they filed for bankruptcy in 2009 during the financial crisis.
For now, the industry has avoided that trap. At the end of May, automakers had almost 2.9 million cars and light trucks in stock, about one million more than at the same time last year, according to Cox Automotive, a market researcher. Nearly 7 percent of those vehicles were 2023 models. By comparison, there were 4.1 million vehicles in stock in 2019, according to Automotive News.
Toyota, Honda, Subaru, and G.M.’s Chevrolet and Cadillac brands have kept tight reins on their inventories and in general have not yet elevated incentives significantly.
But Ford, Lincoln, Dodge, Chrysler, Nissan, Volvo and several other brands have higher stocks — enough to last more than 100 days at the current rate of sales. They’re offering some big incentives, but mostly targeted at specific models, and sometimes specific versions of certain models.
Ford, for example, is offering $5,500 off its Escape S.U.V., but only on the 2023 models that remain in dealer stock. Stellantis is offering $4,000 cash back on the Ram pickup, but it is limited to the 1500 Classic version. Volkswagen is offering interest-free financing on the 2024 Taos small S.U.V., but not on its other models.
“So far we’re not seeing the across-the-board incentives that we had in the past,” said Charles Chesbrough, a senior economist at Cox Automotive.
The growing number of incentives on new vehicles has helped pull down prices of used cars and trucks. In April, used car prices declined nearly 7 percent, according to the Bureau of Labor Statistics.
Among the most heavily discounted models at the moment are electric vehicles, sales of which have slowed in recent months. Consumers’ enthusiasm for those models has ebbed, mainly over concerns about the higher prices of electric vehicles and the challenges of keeping them charged, especially on road trips.
Now automakers are offering generous incentives to entice consumers. Volkswagen is offering discounts of up to $18,750 on leases on the 2023 ID.4, which is still readily available in some places. That includes the $7,500 federal tax credit, which can be rolled into leasing deals under the Inflation Reduction Act.
Other considerable deals are available on the Chevrolet Blazer electric vehicle, the Cadillac Lyriq, the Kia EV6, the Volvo XC40 Recharge hybrid and the Ford F-150 Lightning electric pickup. Tesla, which regularly raised prices during the pandemic, has spent the last year and a half slashing them. Recently the company has been offering 0.99 percent loans on its Model Y S.U.V.
The incentives come on top of other trends that are helping reduce the price of electric vehicles, including falling manufacturing costs and rising competition.
Increased discounting is helping tempt what are known in the industry as “want buyers” — consumers who don’t need a new car but are drawn by new technologies, design or features.
“You have your ‘need buyer,’ whose car had died or needs a lot of expensive repairs, and they have to get a new vehicle,” said Adam Silverleib, owner of a Honda and a Volkswagen dealerships outside Boston. “But a lot of those ‘want buyers’ went away when interest rates went up, and now incentives are bringing some of them back.”
Among them is Brian Pawlowski, a digital marketing executive in Chelsea, Mich. He had been driving a 2017 Chevrolet Volt plug-in hybrid that had only 55,000 miles on the odometer. But he was itching to get a fully electric model.
“I’m a person who likes the environment,” he said. “I could have kept the Volt, but I wanted to upgrade to newer technology.”
He began looking for deals on electric cars and found a two-year lease on a Hyundai Ioniq 5 S.U.V. The deal came with a $13,000 discount and other terms that left him with a monthly payment of $369 for a vehicle with a sticker price of $52,000.
“When the sales guy laid it all out,” Mr. Pawlowski said, “it was pretty hard to pass up.”
Be the first to comment